Keystone Law confident after strong 2020 result

(Sharecast News) - Keystone Law Group reported a "strong" improvement in revenue in its final results on Tuesday, of 16.3% to ?49.6m.
The AIM-traded firm said its profit before tax came in at ?5.2m for the year ended 31 January, representing growth of 10.1%, while adjusted profit before tax was up 12% at ?5.8m.

Basic earnings per share were 9% higher year-on-year at 13.3p, while adjusted earnings per share were ahead 11.9% at 15p.

The company said its cash conversion was also strong at 81%, down from 91% the prior year, with cash from operations totalling ?4.9m, in line with the 2019 financial year.

As it had previously announced, the company was not proposing any final dividend, meaning total ordinary dividends of 3.2p and special dividends of 8p were paid in the year.

On the operational front, Keystone said lawyer recruitment was "strong", with qualified new applicant principals up 4% to 239, and principal lawyer numbers rising 18.4% to 328.

The company reported ongoing demand for junior support, both in 'Pods', which was up 48%, and through its central office.

Total fee earners increased 22.4% to 393, as the firm invested in new office space in a bid to deliver more meeting rooms, hot desks and an improved lawyer centre.

It said it aligned its existing lease with new, now holding co-terminus five-year leases.

Ongoing investment was also made in technology, which was focussed on enhancing security across the company's IT estate, as well as improving the lawyer experience of core systems.

Looking at the current year and the impact of the Covid-19 coronavirus pandemic, Keystone said to date, billing and cash generation in the 2021 financial year had remained "strong", and in line with expectations.

Since the pandemic outbreak, however, the group said it had noticed a "meaningful decline" in the number of new instructions.

Keystone said it was in a strong position to deal with the financial and operational impacts of the coronavirus crisis, explaining that it was "highly liquid", with ?4.4m of cash at 31 January, and remaining cash generative since then.

A high proportion of its cost base was fully variable, notably being lawyer fees at around 75% of revenue, which were also only paid when the client paid Keystone.

The board said its business model was designed to deliver services remotely through a bespoke technology platform, so was "substantially unaffected" by government restrictions on movement.

It also pointed out that it was well diversified across legal services, sectors, specialisms and clients, with no major dependency on any client or single area of the economy.

Due to a lack of clarity on how long the current measures would remain in place and the economic impact of those, Keystone said the impact on the 2021 financial year could now be assessed.

It had modelled a range of scenarios, some more negative than the board currently believed the most likely outcome, but all of which showed Keystone being profitable and cash generative for the current financial year.

"I was delighted that last year was another strong year for us," said chief executive officer James Knight.

"Throughout the year we have seen how the freedom and flexibility of the Keystone model, together with the first class support it provides, has continued to increase its appeal across the legal community."

Knight said the current year had started well, with the board "looking forward" to a strong year of growth when the Covid-19 pandemic broke in the UK.

"Whilst it is an extremely challenging time across the UK economy, we are in a strong position to deal with the challenges which lie ahead.

"Our model is designed to service our clients remotely and so it was a very small step to move our central support services onto the same footing, achieving this with no adverse effects to service delivery.

"Furthermore, we are in a strong financial position, both in terms of liquidity, being debt free and having over ?4.4m of cash, and in terms of the high proportion of our cost base which is fully variable and on a paid when paid basis."

At 1122 BST, shares in Keystone Law Group were down 4.13% at 429p.